TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES
Since mid-summer, the stock market has been volatile amid growing
concerns about the state of the global and U.S. economies. Our share
price has declined substantially even though Mueller's business
continues to be good. Historically the housing industry has done well
when interest rates are low, inflation is low and employment is high.
These conditions are clearly in evidence today indicating a continuing
positive environment for our Company. Obviously, economic conditions
change, but we remain confident that our business plan is sound for both
the short- and long-term.
Mueller earned $18.8 million, or 47 cents per diluted share, in the
third quarter of 1998. This represents an increase of 4 percent over
the $18.1 million, or 46 cents per diluted share, earned in the same
quarter of 1997.
Net income and earnings per share set third quarter records. This
is partly due to a favorable closing agreement to a multi-year federal
tax audit. That agreement lowered the Company's effective tax rate and,
we anticipate, will provide benefits in the future. Operating income
declined slightly from the third quarter last year as margins contracted
in certain product lines.
Pounds of product sold in the third quarter of 1998 totaled 150.7
million, an increase of 8 percent over the 140.1 million pounds sold in
the same quarter of 1997. Net sales were $212.7 million, compared to
$229.1 million in the third quarter of 1997. This decline in net sales
reflected the drop in the price of copper, from an average of $1.02 per
pound in the third quarter of 1997, to 75 cents per pound in the same
quarter of 1998. As we have previously observed, the selling price of
many of our products fluctuates with the price of copper.
Mueller's manufacturing operations performed well during the third
quarter. Copper tube had excellent volume and earnings. Brass rod
posted solid volume and an increase in profitability versus the same
period last year, despite competitive price reductions. Volume at our
copper fittings operations was good, but spreads narrowed to their
lowest level since early 1997. Margins also contracted for our plastic
fittings operations, resulting in lower profits on a small increase in
volume. We see signs of spreads for both copper and plastic fittings
increasing in the fourth quarter. Our European operations did not reach
production quotas. However, we expect European costs and production to
improve in 1999 as we concentrate operations into two plants from three.
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Mueller announced three acquisitions since our last report. On
August 10, Mueller announced a definitive merger agreement to acquire
Halstead Industries, Inc. Halstead operates a copper tube mill in
Wynne, Arkansas, and a line sets facility in Clinton, Tennessee, with
total sales of approximately $250 million in 1997. Copper tube is an
important business for Mueller and the acquisition of Halstead should
allow for economies of scale. Further benefits should be obtained
through specialization and balancing production between Halstead's tube
mill and our own mill in Fulton, Mississippi. Customers should gain
from improvements in service and product availability as a result of
integrated inventory management. The merger is expected to close before
year end.
On August 11, we acquired B&K Industries, Inc. B&K is an import
distributor of residential and commercial plumbing products in the
United States with net sales in excess of $50 million in 1997. B&K
sells through all major distribution channels including hardware co-ops,
home centers, plumbing wholesalers, hardware wholesalers, OEMs, and
manufactured housing wholesalers. This acquisition gives Mueller
exceptional opportunities to increase sales of our existing products in
the retail channel, which is a large and growing component of the
plumbing supply business.
On September 15, we acquired Lincoln Brass Works, Inc. Lincoln
produces custom control valve assemblies for the gas appliance market.
Lincoln had net sales of approximately $35 million in 1997. Its metal
fabrication and machining capabilities complement our existing brass
forging operation. Lincoln is also a large consumer of brass rod and
forgings produced by Mueller.
Looking ahead to 1999, we have an ambitious business plan. Our
core operations remain busy, and we expect continued benefits from our
ongoing capital investment programs. We are making progress in Europe,
and expect improvements to the bottom line there next year. Our new
copper refinery project in Fulton, Mississippi, remains on schedule for
the first half of 1999. And we plan to move rapidly to reap benefits
from our recent acquisitions.
Sincerely,
/S/HARVEY L. KARP
Harvey L. Karp
Chairman of the Board
/S/WILLIAM D. O'HAGAN
William D. O'Hagan
President and Chief Executive Officer
October 12, 1998
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MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Quarter Ended
September 26, September 27,
1998 1997
(Unaudited)
Net sales $ 212,746 $ 229,133
Cost of goods sold 163,952 181,376
Depreciation and amortization 5,650 5,593
Selling, general, and
administrative expense 17,692 15,120
--------- ---------
Operating income 25,452 27,044
Interest expense (1,158) (1,818)
Environmental reserves - (1,100)
Other income, net 1,809 1,661
--------- ---------
Income before taxes 26,103 25,787
Income tax expense (7,338) (7,736)
--------- ---------
Net income $ 18,765 $ 18,051
========= =========
Earnings per share:
Basic:
Weighted average shares outstanding 35,689 35,015
========= =========
Basic earnings per share $ 0.53 $ 0.52
========= =========
Diluted:
Weighted average shares outstanding
Plus assumed conversions 39,800 39,283
========= =========
Diluted earnings per share $ 0.47 $ 0.46
========= =========
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MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Nine-Months Ended
September 26, September 27,
1998 1997
(Unaudited)
Net sales $ 665,265 $ 645,936
Cost of goods sold 512,927 509,845
Depreciation and amortization 16,923 15,409
Selling, general, and
administrative expense 53,946 45,850
--------- ---------
Operating income 81,469 74,832
Interest expense (3,701) (4,114)
Environmental reserves (600) (3,100)
Other income, net 6,513 4,857
--------- ---------
Income before taxes 83,681 72,475
Income tax expense (25,941) (22,327)
--------- ---------
Net income $ 57,740 $ 50,148
========= =========
Earnings per share:
Basic:
Weighted average shares outstanding 35,338 34,991
========= =========
Basic earnings per share $ 1.63 $ 1.43
========= =========
Diluted:
Weighted average shares outstanding
plus assumed conversions 39,686 39,208
========= =========
Diluted earnings per share $ 1.45 $ 1.28
========= =========
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MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 26, 1998 Dec. 27, 1997
(Unaudited)
ASSETS
Cash and cash equivalents $ 62,121 $ 69,978
Accounts receivable, net 141,769 128,902
Inventories 117,679 98,181
Other current assets 10,175 11,990
--------- ---------
Total current assets 331,744 309,051
Property, plant and equipment, net 294,370 260,364
Other assets 73,169 41,361
--------- ---------
$ 699,283 $ 610,776
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 18,187 $ 18,980
Accounts payable 34,573 30,530
Other current liabilities 66,654 51,047
--------- ---------
Total current liabilities 119,414 100,557
Long-term debt 56,223 53,113
Other noncurrent liabilities 38,435 38,375
--------- ---------
Total liabilities 214,072 192,045
Minority interest in subsidiaries 390 691
Stockholders' equity 484,821 418,040
--------- ---------
$ 699,283 $ 610,776
========= =========
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